Proposed amendments to the extant HK SME-FRF and SME-FRS and consultation on the proposed restructuring of financial reporting by private companies in Hong Kong  

In March 2007, the Financial Services and the Treasury Bureau published a consultation paper on the Rewrite of the Accounting and Auditing Provisions of the Hong Kong Companies Ordinance (the Consultation Paper). The Consultation Paper proposes that a private company which is the holding company of a small group of companies would be allowed to apply section 141D of the Companies Ordinance and prepare group accounts provided that certain "small group" size criteria are met. Accordingly, in May 2008, the HKICPA released an exposure draft proposing amendments to the extant Small and Medium-Sized Entity Financial Reporting Framework (SME-FRF) in respect of the qualifying criteria for both Hong Kong and non-Hong Kong incorporated companies and the Small and Medium-Sized Entity Financial Reporting Standard (SME-FRS) in respect of the preparation of group accounts. A holding company is required to present consolidated financial statement unless it is exempted under the SME-FRS.

In addition, the HKICPA considers that cash flow statements provide useful information to users of financial statements, such as to assess the entity's ability to generate cash and cash equivalents. Accordingly, the HKICPA has proposed in the Exposure Draft to amend the extant SME-FRS to require the preparation of cash flow statement.

A few days before publishing the exposure draft to amend the SME-FRF & FRS, the HKICPA issued a consultation paper to seek views as to whether the reporting burden on private companies should be reduced by introducing a financial reporting framework for large private companies. The proposed introduction of a new financial reporting framework also targets to match the financial information needs of financial statement users of private companies.

The consultation paper proposes 3-tier financial reporting for companies incorporated in Hong Kong as follows:

	listed companies are required to prepare their financial statements following HKFRSs; ¡@
	large private companies can select either HKFRSs or a large private company standard; and ¡@
	small private companies can select either HKFRSs, a large private company standard or SME-FRR &FRS.

The large private company standard could be developed by either reducing disclosures under HKFRSs or adopting the IFRSs for SMEs (with or without simplifications) which is currently an exposure draft.

This consultation paper as well as the exposure draft of proposed amendments to the SME-FRF & FRS are available on the HKICPA website. Comment period closes on 30 September 2008. Comments may be sent by mail, fax or e-mail to:

Steve Ong
Deputy Director
Standard Setting Department
Hong Kong Institute of Certified Public Accountants
37th Floor, Wu Chung House
213 Queen's Road East
Wanchai, Hong Kong

F +852 2865 6776
E commentletters@hkicpa.org.hk